Economic growth has picked up slightly over the past two quarters, supported by the authorities’ stimulus policy measures. In Q1 2017, the growth acceleration was fuelled by a rebound in industrial activity, lifted by stronger domestic demand and an upturn in exports. This cyclical strengthening has enabled the central bank to start to tighten monetary policy cautiously, in response to the continued rise in credit risks and liquidity risks in the financial sector. However, downside risks to short-term economic growth prospects remain high, and the authorities’ determination to contain financial risks could be tested rapidly in case of another slowdown in economic activity.
Industrial production growth has accelerated
Economic growth accelerated slightly in Q4 2016 and again in Q1 2017. Real GDP rose by 6.9% year-on-year (y-o-y), compared to 6.8% in the previous quarter and 6.7% for full-year 2016. Of the three main sectors of activity, services continued to report the strongest growth (7.7% y-o-y in Q1 2017, vs. 7.8% in 2016), but the industry was the only sector to report an acceleration (6.4% y-o-y in Q1 2017, vs. 6.1% in 2016), buoyed by brighter export prospects and stronger domestic demand.
After two years of contraction, Chinese exports rose by 4% in Q1 2017 compared to Q1 2016 (in US dollars), in a world environment marked by an upturn in demand, prices and trade volumes. This recovery is likely to consolidate in the very short term, and the yuan’s recent depreciation (-6% in real effective terms in 2016) is also likely to help. Yet downside risks are still high, notably due to the persisting uncertainty shrouding world trade growth prospects and the possible rise in trade tensions with the United States.
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by Christine PELTIER